My Math Forum Binomial Distribution
 User Name Remember Me? Password

 Probability and Statistics Basic Probability and Statistics Math Forum

 February 25th, 2017, 09:48 PM #1 Newbie   Joined: Jan 2017 From: Malaysia Posts: 20 Thanks: 3 Math Focus: calculus Binomial Distribution Hi everyone. Second question for today. And this question doesn't have answer on my practice book. So I need help from members at this forum. Q. Between 1872 and 2000, stock prices rose in 74% of the years. Based on this information, and assuming a binomial distribution, what do you think is the probability that the stock market will rise a) next year? b) the year after next? c) For this situation, what assumptions of the binomial distribution might not be valid?
 February 25th, 2017, 10:05 PM #2 Senior Member     Joined: Sep 2015 From: USA Posts: 2,529 Thanks: 1389 show some workings and we'll explore where you're having problems.
February 25th, 2017, 10:52 PM   #3
Newbie

Joined: Jan 2017
From: Malaysia

Posts: 20
Thanks: 3

Math Focus: calculus
Quote:
 Originally Posted by romsek show some workings and we'll explore where you're having problems.
Actually I don't have any ideas how to solved it. Since the distribution covers from 1872 until 2000 how can we use the distribution to estimates the next year probabilities. It seems out from the domain. Or I missing somethings about Binomial approaches?

February 26th, 2017, 05:14 AM   #4
Senior Member

Joined: May 2016
From: USA

Posts: 1,310
Thanks: 551

Quote:
 Originally Posted by palongze Actually I don't have any ideas how to solved it. Since the distribution covers from 1872 until 2000 how can we use the distribution to estimates the next year probabilities. It seems out from the domain. Or I missing somethings about Binomial approaches?
You are missing the really important idea of using experimental or historical evidence on relative frequencies to estimate future probabilities.

If the stock market rose during 95 years out of a total of 128 years, meaning approximately 74% of the time, do you really think that there is a 50% chance it will fall next year. The historical evidence says that a good estimate of the probability of the stock market rising in a future year is 74%.

Of course you are correct that there is no guarantee that the future will be like the past. Perhaps water will flow uphill next year, but past experience says that it will flow downhill so that is how the water company lays its pipes.

And we may be able to analyze the experimental or historical data to refine our estimate so that we can make predictions better than those based on just relative frequency. But the main practical reason that statistics and probability are studied is to let us make predictions that are based on evidence.

 Tags binomial, distribution

 Thread Tools Display Modes Linear Mode

 Similar Threads Thread Thread Starter Forum Replies Last Post Bhuvaneshnick Probability and Statistics 3 January 7th, 2015 10:10 PM mkv Advanced Statistics 1 November 22nd, 2010 03:40 PM wulfgarpro Probability and Statistics 2 June 8th, 2010 01:21 AM latkan Advanced Statistics 1 May 11th, 2009 05:49 AM CRGreathouse Advanced Statistics 0 August 11th, 2008 05:43 AM

 Contact - Home - Forums - Cryptocurrency Forum - Top